European Commission representative: Latvia's planned tax reforms are generally acceptable

RIGA - The planned reforms of Latvia’s tax system are generally supportable, Inna Steinbuka, the head of the European Commission’s Representation in Latvia, said in an interview with LNT commercial TV channel this morning.

She noted at the same time that the European Commission is concerned about compensatory mechanisms. “The overall direction can be supported, but it is necessary to analyze the degree of the risks,” Steinbuka said.

The European Commission’s representative indicated that ever since 2012 Latvia has been demonstrating very strict fiscal discipline, but as far as the planned tax reform is concerned there is still no clarity about compensatory mechanisms, because the clamp down on shadow economy, for instance, has not been very successful so far.

“We are seeing the resolve to keep fighting the shadow economy, and so there is a hope that tax revenues will increase, but we know that the clampdown on the shadow economy has been going on for a very long time already, but the results, unfortunately, have not been impressive, at least for now. There is a certain risk of the budget deficit growing larger,” Steinbuka warned.

She also indicated that the European Commission has repeatedly called Latvia’s attention to the necessity to reform its tax policy by cutting taxes on labor and that the plan to reduce the personal income tax rate can be supported.

As reported, the Finance Ministry has proposed to lower the personal income tax rate from 23 percent to 20 percent as part of the tax reform.